Why China wants to control overseas fishmeal producers

Investment banks who advise some of China’s largest agricultural conglomerates have been telling Seafoodsource of intense interest in overseas producers of fishmeal. Big names like New Hope, Tongwei and the two giants of Guangdong province, Haid Co. and Wen’s Co., are very interested in acquiring fishmeal assets overseas to feed growing demand in China. Struggling with over-capacity in their core business of animal feed, the firms are seeking out profitable new niche businesses.

In this they also have the tacit approval and support of Chinese policy makers. Global fishmeal supplies today are lower than a decade ago, and the El Niño weather phenomenon in Peru makes forecasting supplies difficult. As the world’s top importer of fishmeal, China doesn’t like this uncertainty – something pointed out in official government documents on the fisheries industry.

As China expands its shrimp output it needs more fishmeal – tilapia farms are using minimal fishmeal input – it wants to secure the key protein source in fish feed formulation for shrimp and high-value fish which China wants to produce in its aquaculture operations.

While by-products now account for one-third of the global fishmeal supply in China the processing sector is facing huge pressures for increasing consolidation and better productivity, effectively reducing the possibility of continuous growth in supply from processing waste.

China looks to the limited availability and relative high cost of fishmeal and wants to have more control over both. The nature of China’s political system makes it paranoid over food security hence control over supply and pricing are crucial to the big feed companies and state run agricultural conglomerates licensed to conduct overseas trade.

Even firms not active in food or fisheries have come to see fishmeal as a profitable business – strangled by over-capacity many of China’s largest state owned industrial firms have cast about for profitable new business lines and many have entered the food, grain and oilseeds trade, importing to satisfy what’s seen as the reliable future rise in Chinese demand for proteins.

China’s big feed companies don’t lack for geographic reach and connections: one of the companies sniffing out fishmeal companies is Sanhe Hopeful – one of its key suppliers of soybeans is Francesco Macri, the businessman father of Argentina’s new president Mauricio Macri. Big Chinese feed firms like New Hope and Guangdong Haid have investments in grain and oilseeds plantations and processing facilities in territories as far flung as Bolivia, Zimbabwe and Cambodia.

These executives look to data published by the China Feed Network (a research service of the China Feed Industry Association) which suggests profit margins for aquafeed at 7 percent are considerably higher than the three percent average profit margins recorded by China’s huge agri vaccines industry. They also note the China Feed Network projection that China’s animal feed consumption will rise an average 4 percent per year through the current decade – in large part due to continued growth in pig rearing, for which fish meal is also in demand (as an ingredient in the feed for young piglets). And analysts advising on the potential acquisitions also point out that China plans to up its output of shrimp but also point to the limited success of experiments to replace fishmeal by plant protein sources

While soy is considered as the most nutritive plant protein source to replace fishmeal it’s a commodity which China has to import in greater bulk as the country’s domestic supply is already insufficient for a growing animal feed need. China has been keen to purchase the suppliers of its soy in Latin America. As the US soybean sector promotes the use of soybean in China’s aquaculture, so the country is covering its bets by seeking to secure alternative sources of ingredients supply – hence the interest in fishmeal producers.

At the same time there are questions to ask: will the projected continuous annual increases in Chinese seafood consumption (some agencies put the growth at five percent per year) materialise. Will Chinese buyers continue to be able to rely on the generous availability of financing from China’s state-run banks, considering new urgency over crisis levels of bad loans on their books? And much will depend on efforts to increase local sources of fish meal replacers like bone meal from meat processing plants– along with continued research in China to come up with new inputs for aquafeed. Meanwhile, it looks like 2016 could be a busy year for investment banks advising the feed industry in China.


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